If You Don’t Use This Tool, Your Trades Could be Doomed
Dear Penny Stock Millionaire,
After my rant yesterday, you should have the importance of liquidity burned into your brain. So how do you find penny stocks that will be lucrative and have good liquidity?
It’s not as difficult as it may seem. I’ll share 5 tips that you can use to find highly liquid stocks to trade.
#1 Use Stock Screener
The right tools make all the difference. Can you imagine trying to do almost anything without tools? How about mining for gold? Without tools, you’d never get anything out of the ground. How about something simple like raking the leaves without a rake? Not possible.
If you have the right tools, study hard enough, and take your time to build your account…
You’ll be able to hire someone to rake the leaves for you. Pay that kid down the street enough so she can save for college. Better yet, pay her enough so she can start trading.
Sounds cool, right?
Seriously, you need the right tools. It’s an investment in your future. A high-quality stock screener can help you find the stocks you’re looking for. For today, you can start with one of the free tools.
Head on over to finviz.com and then click the screener tab. There you can screen for stocks listed on one of the major exchanges. However, there are limitations and certain stocks won’t show up, even if you know the ticker symbol.
You can screen for average trading volume (over 52 weeks), current volume, and relative volume. Relative volume compares present volume to previous volume over a given time frame. It shows you changes in volume. That might be useful, right?
Once you outgrow Finviz, you can look into purchasing a more powerful stock screener. There are plenty to choose from, so make sure you do your research and pick the one that will work best for you.
#2 Use Chart Patterns While Trading Liquid Stocks
I love to trade patterns. It’s all I do. It’s how I made my first million, my second million, my third– well, you get the idea. Pretty much all my trading wins are from recognizable patterns. There are a few you should learn.
Example of Great Chart Patterns
Here are a couple of my favorite plays. They tend to happen over and over again. There are haters out there who say things like, “Tim talks about patterns that don’t work anymore. They’re all played out …” That’s total bullsh*t. These patterns have stood the test of time. Why? Because they’re based on human psychology. Humans are predictable.
Dip buying morning panics is one of my recent favorites. The ASNS chart below isn’t the strongest bounce but you get the idea. It’s the psychology of this play you want to recognize. Why morning? Because the trading volume is higher — the stock is more liquid and more likely to bounce.
ASNS morning panic dip buy Source: FreeStockCharts.com
This is one of my all time favorite patterns. It made me my first million. Check out the CANB chart below. Weed stocks went crazy in 2018. Lots of supernovas. Notice the volume spike — liquidity increased during the price spike and fall back in August.
CANB Supernova Source: FreeStockCharts
#3 Stock Analysis
Part of what I teach my students is how to do stock analysis. But not super-math-whiz type of analysis. I don’t use the fancy technical analysis indicators. Day highs, lows, and momentum work for most of the trades I make.
That’s not to say you won’t have to study your ass off! You will. There’s no cheating success in the stock market.
Technical and Fundamental Analysis
I talk about this all the time, because it’s an absolute non-negotiable step. You need to learn both technical and fundamental analysis. Most losses come from disregarding some key indicator. It might be something from either of these two methods.
Fundamental analysis is more about the company — how does it do business? What are it’s products? Is it doing deals with some big, established company? Is there a new product release coming soon?
Technical analysis is like the charts above. How is the stock behaving? Is there enough trading volume? Are there trading patterns forming. Is there a history of morning panics?
A combination of technical and fundamental analysis should be part of your trading plan. Keep it in a trading journal so you can remember what works and what blows.
#4 Be Prepared to Short The Stock
Shorting is another of my favorite plays. It’s how I made my second million. It isn’t so much about finding liquid stocks, as it is understanding what to do when you do find them.
Short-selling means you borrow shares to sell. When you sell the borrowed shares the money goes into your trading account. Then, when the price drops, you buy shares at the lower price and pay back the borrowed shares.
This strategy is not always available — sometimes it’s hard to find shares to borrow. But stocks with good liquidity will be better for short-selling. It can also be downright dangerous. So before you start short selling make sure you do your homework and know what you’re doing.
#5 Never Stop Learning
I don’t care how good you are, how long you’ve been trading, or how much money you’ve made if you want to do this full-time, and live a life most people can’t then you need to do what most people won’t do.
Meaning: Never stop learning. Keep your trading education going. Study like your entire future depends on it, because if you want to live the laptop life,it does.
The Bottom Line
I tell my students they should have a trading mantra.
Let’s come up with one right now. Repeat after me: “I will trade volatile and liquid stocks.” Repeat it to yourself every day.
Stock liquidity for traders means ease of entry and exit. It means you won’t be stuck in a trade if it goes south. After all, my number one rule is cut losses quickly. You can’t do that if you can’t get out. There are other things to consider as well. So don’t think because a stock is liquid and volatile it’s a gimme. But liquidity is one of the basic things you should look for.
Editor, Penny Stock Millionaires